Over the long term, growth stocks usually outperform slow growing defensive stocks and that's the case for large companies or small ones.
Stocks with a small capitalisation have much more room to grow, it's far easier to double from $100 million to $200 million than it is to go from $100 billion to $200 billion.
So when you combine those two ideas, small growth stocks have the best chance of outperforming the market.
Below are five growth stocks that I think will outperform the market over the next three years:
Altium Limited (ASX: ALU)
Altium is an electronic PCB software provider that allows the products of the future to be designed by people at places like NASA and BMW.
It has already grown substantially over the last five years and could keep going as it steals market share from competitors.
I think Altium is a blue chip of the future and it's currently trading at 24.5x FY17's estimated earnings with a partially franked dividend yield of 2.58%.
Collins Foods Ltd (ASX: CKF)
Collins Food is an operator of KFC with outlets in Queensland, Western Australia and Northern Territory.
It has enjoyed reasonable growth over the last few years, but the exciting part is that it's just acquired 11 KFC outlets in Germany. This means it has the potential to grow much more as it's not limited to Australia's small population and could potentially grow like Domino's Pizza Enterprises Ltd. (ASX: DMP) has overseas.
It's currently trading at 21x FY16's earnings with a grossed up dividend yield of 3.44%.
Class Ltd (ASX: CL1)
Class is a provider of cloud accounting software for self-managed super funds (SMSFs). There is growth in the popularity of SMSFs and accounting firms want to become more efficient, so this seems like a great combination for Class.
A majority of superannuation account work is still done by desktop software, as Class is the market leader in cloud accounting there is a large potential growth opportunity for Class as SMSF accounts are moved from desktop software to cloud based.
Class is trading at 41.3x FY17's estimated earnings with a dividend yield of 1.38%, which will soon be franked.
Capilano Honey Ltd (ASX: CZZ)
Capilano is a company that sells 100% Australian honey. It is rapidly growing its export sales and it grew its Chinese sales by 56.9%. This isn't a big part of its revenue yet, but it could be if it keeps experiencing growth at that rate.
It's trading at 14.2x FY17's estimated earnings with a grossed up dividend yield of 3.57%.
Freelancer Ltd (ASX: FLN)
Freelancer owns one of the world's largest project portals, connecting freelancers with the people who need freelance services. It's growing users and the number of projects every year and could become a household name if it keeps growing in popularity.
Freelancer isn't making a profit yet and doesn't pay a dividend.
Foolish takeaway
I think all five stocks have a good chance of beating the market over the next few years, but at the current prices I think that Class, Capilano and Altium would make strong buys.
If these five great stocks aren't enough, perhaps you should look at our number one pick for 2017.